Buy to let Consumer

Consumer Buy To Let

As of 21st March 2016, there will be new legislative framework for Buy To Let Mortgages, called “consumer buy to let”.

With the exception of letting to your own family members, the UK buy to let market is unregulated by the Financial Conduct Authority; from 21 March 2016 this will change for any transaction classed as “consumer buy to let” as the MCD (Mortgage Credit Directive) is introduced.

This new legislation has been brought in with the aim of providing a distinction between “accidental landlords” who may need consumer protection and “professional landlords” who operate their portfolios as a business.

A professional landlord is defined as someone already renting out a property or getting a mortgage for the specific purpose of running a buy to let business.
Consumer buy to let definition according to the HM Treasury:

“There are some situations where borrowers do not seem to be acting in a business capacity. Examples of this may be where the property has been inherited or where a borrower has previously lived in a property, but is unable to sell it so resorts to a buy to let arrangement.

In these cases, the borrower is a landlord as a result of circumstance rather than through their own active business decision. The government’s view is that such borrowers are consumers and would need to be covered by an appropriate framework.”

A consumer buy to let transaction will be treated in a similar way to a residential mortgage, so more paperwork and affordability tests, meaning affordability will no longer be based solely upon the rental income.

Lenders will have to issue a key facts document, similar to that of a Residential Mortgage.

How Does This Effect You ?

For most, this new legislation will not have any impact on your future applications and the majority of the buy to let market will remain unregulated.

Are there Lenders that can help ?

There are current around 20 buy to let lenders that will offer consumer buy to let mortgages.

It is likely that these numbers will increase once the new legislation is put into force.